AEP Really Looks "Dead in the Water"

This column featured American Electric Power (AEP ) in the issue that hit the newsstands on Jan. 10, warning that, because of liquidity woes, AEP would have to cut its hefty $2.40-a-share yearly dividend. AEP insisted it would not touch the payout. But on Jan. 24, the No. 1 utility announced it would slash dividends by 42% and take big write-downs. It also lowered its 2003 estimates. The stock promptly sank--from 30 on Jan. 9 to 24 on Jan. 29--and may sink further.

Jeffrey Gildersleeve of Argus Research, who downgraded AEP to a sell on Jan. 27, says it faces more credit downgrades, earnings drops, and operating weakness. Standard & Poor's put AEP on CreditWatch after the write-off. AEP is saddled with debt of $12 billion. Moody's Investors Service has AEP's commercial paper on review. AEP is unclear what assets to unload to reduce debt, says Gildersleeve. Bryan Spratt of Banc One Investment Advisors, with 630,000 AEP shares, says AEP has yet to show how it will improve the balance sheet. It should issue new stock--diluting earnings but easing the debt issue, he says. Until then, AEP is "dead in the water," adds Spratt.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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